So this post is supposed to be on goals, but I'm not ready yet. But have something else to talk about. So I like to read books about finances becaue they give me new ideas, help me to stretch out my mind, and just plain motivate me. So now I'm re-reading The Millionaire Next Door. It's based on studies of people who have a net worth of $1 million or more, but there is also a more flexible definition of "wealthy" based on your current income. So they have this neat little formula for what your net worth should be:
Age x Annual Income (pretax, but not including inheritances) /10
So, I decided to plug in my numbers just for fun. I'm 26 and this year, my total earned income will be a whopping $600. So,
26 x 600 / 10 = $1,560
Amazing, huh? A net worth of a mere $1,560 would make me "wealthy" based on $600 a year. What was my net worth again? Oh yeah. -20 grand. This would make me what the book calls an under accumulator of wealth.
It's kind of an interesting formula. Interesting because age is used when you do not work your whole life. So it's only counting your total earnings for a tenth of your age, but when you are older your working years are a much larger percent of your entire life than when you are younger. I got my first job at 16, and I've pretty much been working in some regard or another (I spent 18 months volunteering as a missionary for my church so no bucks there) since then, so I calculate my earning-money working life to be about 34% of my entire life so far. I think the highest I've made in a year was almost $20,000 and the lowest, well, except for the missionary work, it would have to be my current rate. But let's fast-forward to when I'm say 50. Then my working life would be 66% of my entire life.
At any rate, the formula seems to work out ok anyway, and it's fun to give it a try. What happens when YOU plug the numbers in? Are you wealthy?
Age x Annual Income (pretax, but not including inheritances) /10
So, I decided to plug in my numbers just for fun. I'm 26 and this year, my total earned income will be a whopping $600. So,
26 x 600 / 10 = $1,560
Amazing, huh? A net worth of a mere $1,560 would make me "wealthy" based on $600 a year. What was my net worth again? Oh yeah. -20 grand. This would make me what the book calls an under accumulator of wealth.
It's kind of an interesting formula. Interesting because age is used when you do not work your whole life. So it's only counting your total earnings for a tenth of your age, but when you are older your working years are a much larger percent of your entire life than when you are younger. I got my first job at 16, and I've pretty much been working in some regard or another (I spent 18 months volunteering as a missionary for my church so no bucks there) since then, so I calculate my earning-money working life to be about 34% of my entire life so far. I think the highest I've made in a year was almost $20,000 and the lowest, well, except for the missionary work, it would have to be my current rate. But let's fast-forward to when I'm say 50. Then my working life would be 66% of my entire life.
At any rate, the formula seems to work out ok anyway, and it's fun to give it a try. What happens when YOU plug the numbers in? Are you wealthy?
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